What Happened? Was It A Correction Or A Snowflake?

And now… Today’s A Pfennig For Your Thoughts…

February 6, 2018

* Safe Haven are spared from the selling…
* Short Gold paper trades appear to be absent yesterday!

Good Day… And a Tom terrific Tuesday to you! It’s one of those days… It all began yesterday afternoon, I felt very tired and so I took a nap… Then after waking and going outside in the sun for a bit, I came back inside, and felt like I needed another nap, and so on. Then this morning, the alarm went off, and I turned it off, but couldn’t wake up… Every once in a while, I have these days where all I can do is sleep… I’m in one of those patterns right now, so if this is unusually late this morning, it means I dozed off while writing! So, this letter will be shorter than usual, in hopes that I can get it done and get back to sleep! HA! Actually, I realized yesterday that I had gone on way too long in the letter, so I’ll make up for that today! Redbone greets me this morning with their song: Come and Get Your Love…

The Big News yesterday was all about the stock market, which saw the DOW lose more than 1,500 points, and that’s better than it stood at one point in the day when it was down more than 2,000 points! Is, this just a correction to a market that has seen nothing but green lights for far too long? Or… Is this the beginning of the great sell-off that some analysts have been calling for? I’m no stock jockey, but I’ve seen the writing on the wall for stocks for a long time, but just like any asset that’s in a strong bull market, it defies gravity longer than anyone can imagine.

The “correction” is what we’ll call it for now wasn’t confined to just U.S. stocks, the Asian stock market lost 3.8%, the Japanese stock market lost 4.7%, and the European stock market, did a little better only losing 1.8%. Commodities took a shot to the mid-section, with Oil leading the way losing about $1.50 in the last 24 hours, and even the all bow to Bitcoin, has dropped below $7,000, but Gold, which normally does well, in times like this, gained $7.70 yesterday, and is up another $8.80 in the early morning trading.

Gold and Chinese renminbi are the only two survivors from yesterday’s selling, and isn’t it apropos that these two are joined at the hip today? The Gold story for the last decade has had a background story of Chinese accumulating any physical Gold it could get its hand on…

Swiss francs, Japanese yen, euros, Gold, and U.S. Treasuries continued to be considered “safe havens” yesterday. The 10-year Treasury saw its yield move from 2.85% yesterday to 2.71% this morning. Believe me folks, I used to trade Treasury bonds, that size move in bonds is like moving mountains! Remember bond pricing works like this, as the yield rises the bond price goes down, and vice versa. So, there had to be a truck load of buying and driving the price higher, and dropping the yield yesterday.

Don’t ask me why Japanese yen is considered to be a safe haven currency. We’ve been through this before in times like this. And just because it’s the 2nd most traded currency doesn’t qualify it to be a safe haven currency in my book! Their economy is a disaster and has been since the mid-90’s, their debt is greater than anyone’s in the world, and they have negative interest rates, and I could go on and on… But the wizards of the world still consider it a safe haven, so be it…

So, what caused all this nastiness in everything other than the safe haven assets? A snowflake can cause an avalanche, and the snowflake for U.S. stocks was the thought that Fed Chair Janet Yellen is out, and new Fed Chairman, Jerome Powell, is going to hike rates aggressively, thus throwing the economy into a recession, and panic began to spread…

Remember what I said when Jerome Powell was confirmed as the new Fed Chairman, that the thought then was that he would be aggressive in hike rates, and wondered how that was going to sit with President Trump, who is all for lower rates and easy credit? I rang the warning bell at that time, but as usual no one paid attention to what I was saying… UGH!

There was a time 15 years ago that if I said something, newspapers, media outlets, would be calling me for an interview. That went on for about 5 years, and then it all stopped… I found out that the public relations firm we used was told to not send interview requests to me any longer. You see, I must have ticked off someone with something I said, and like Puff the Magic Dragon, I ceased my fearless roar… But any further discussion of that will be held on the Butler Patio… Moving on…

Getting back to Gold, because I can, and the fact that it is shining star this morning. I saw something in the trading of Gold yesterday that I found interesting… Recall that a week ago when Gold was being subjected to tons of short Gold paper trades, the number of contracts traded were up in the 300 and 400,000 range. But yesterday, when Gold was getting bought, the number of contracts traded were 292,000, still a healthy number, but on that appears to be minus the short Gold trades…

And, it reminds me of something I used to tell people all the time, and that’s the fact that if everyone that was buying assets for their investment portfolio bought physical Gold, that it would suffocate the short Gold paper trades… For that’s what it appears to have happened yesterday!

The U.S. Data Cupboard is pretty much empty today, with a Fed head, James Bullard speech the highlight of the day… Yesterday’s Data Cupboard showed us that the services index had rebounded from the drop in Rocktober, and November, and December, which was a surprising rebound to me… I’ve long said that here in the U.S. we’ve become a servicing country, and our service sucks eggs…

To recap… It was all about the U.S. stock market yesterday, was it a correction, or the beginning of an avalanche for stocks? Jerome Powell was sworn in as Fed Chairman, and the thought of what he’s going to do spooked the markets, with francs, yen, euros, Gold and U.S. Treasuries, the shining lights while everything around them not only here in the U.S. but also abroad, was getting sold.

For What It’s Worth… I’ve been talking about the BREXIT negotiations and warning that they could be a real game changer for the U.K. and then I saw this article on Bloomberg.com that is European Central Bank President, Mario Draghi, talking about all this from a Euro-view. This article can be found here: https://www.bloomberg.com/news/articles/2018-02-05/draghi-says-ecb-needs-to-prepare-for-possible-cliff-edge-brexit

Or, here’s your snippet: “Mario Draghi said the European Central Bank has no choice but to brace for the possibility that the U.K. will exit the European Union without a transitional agreement.

“We always prepare for any eventuality but at the same time we are assessing the direction, probability and potential impact of risk,” Draghi told members of the European Parliament in Strasbourg Monday. “The bottom line is this one — either the negotiation is well managed and there won’t be substantial risk, or it is not and then the risks will be there, so we’re certainly looking at that and we’ve got to be prepared.”

The U.K. is scheduled to leave the E.U. in March 2019 and Prime Minister Theresa May currently wants to negotiate a transitional phase after that in which business between her country and the remaining 27 members of the bloc carries on as usual. Yet disagreement within Britain’s ruling Conservative Party, as well as the negotiations with the E.U., mean that achieving such a deal is far from certain.”

Chuck again… I think Draghi is bang on with his thoughts that Maybe everything will be fine, but there are risks that everything won’t be fine, and they should prepare for those risks… Think about that for here in the U.S. with our debt situation and rising interest rates… same thing, eh?

Currencies today 2/6/18… American Style: A$ .7860, kiwi .73, C$ .7978, euro 1.24, sterling 1.3940, Swiss $1.07, … European Style: rand 12.10, krone 7.8168, SEK 7.9505, forint 250.06, zloty 3.35, koruna 20.3376, RUB 56.75, yen 109, sing 1.3213, HKD 7.8185, INR 64.30, China 6.2917, peso 18.81, BRL 3.2319, Dollar Index 89.53, Oil $63.66, 10-year 2.71%, Silver $16.80, Platinum $996.50, Palladium $1,022.43, and Gold… $1,345.30

That’s it for today… I’ve got to get going because I have to go back to the dermatologist early this morning for a follow up. The left side of my face is better, but sill looks bad… This will be one of those short weeks for me and the Pfennig, as Friday is an infusion day… So, no Pfennig on Friday… Yesterday, I asked all three of my oncologists to get together and come up with a new plan of attack for me. I’ll find out Thursday what they came up with. Yes, I have an oncologist in Houston, St. Louis and Jupiter… The St. Louis and Jupiter docs usually take their cue from the Houston doc, who’s at MD Anderson Cancer Center… Who usually is as difficult to get a hold of as it would be to schedule a meeting of the Easter Bunny, Santa and Bigfoot! Sorry to bore you with this stuff, my fat fingers just started typing and the next thing I know, I’m telling you that King Crimson is taking us to the finish line today with their classic rock song: In the Court of The Crimson King… I hope you have a Tom Terrific Tuesday, and remember to always Be Good To Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts

 

) The Daily Pfennig is no longer published by EverBank and it is now published by Aden Research Group.

Chuck Butler recently joined the Aden Research Group, a research center led by writers and market analysts Pamela and Mary Anne Aden. The Aden Research Group publishes three newsletters:
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